Fauji Fertiliser Company (FFC) reported a 38 percent increase in net earnings, led by substantial rise in revenues on the back of higher prices and increased urea sales during the six months ending June. The company earned a profit of Rs 6.7/share for first half 2009 (1HCY09) - largely in line with consensus estimates of Rs 6.8/share.
Maintaining its high payout policy, the company also declared an interim cash dividend of Rs 2.6/share for the quarter, taking its half-year cash payout to Rs 6.9/share. FFC has offered a dividend yield of 22 percent on annualised basis for those who invested in the scrip on January 1, 2009.
FFCs revenues soared by 20 percent during the period mainly because of 4 percent increase in domestic urea sales, coupled with 21 percent rise in domestic urea prices. Increase in sales was mainly attributed to capacity expansion of 70,000 tons per annum at the end of CY08.
The firms premium pricing power helped to mitigate the impact of rising depreciation charges booked on account of higher maintenance cost of urea plant-III. Unlike its peers, FFCs gross margins showed a stable trend - growing 3 percent over the period.
FFCs non-core earning which has always been a significant contributor to its bottom-line more than doubled during the period, thanks to dividend contribution from its associated firm, Fauji Fertiliser Bin Qasim, received in 1QCY09. The firms return on large cash deposits and short-term investments also increased substantially in 2QCY09.
High financial charges in the second quarter, however, restrained its profits a bit, in what could have been an outstanding earning season for the company. This is largely attributed to FFCs continued reliance on short-term borrowings to finance its working capital requirements coupled with 12 percent increase in long-term debt to fund the modernisation of its urea plant-III.
FFCs stock performance has been phenomenal during CY09 - outperforming the market by 53 percent as against 34 percent increase in benchmark KSE. This gave an additional 52 percent return as capital gains to investors on top of its lucrative dividend yield.
Going forward, the firms business is seen in wonderful health making it one of the safest bets in the industry. The companys core urea business will continue to yield high margins as any cost increase would be directly passed on to the end consumer without any fears of loosing demand.
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FFC P&L
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Rs (mn) 2QCY09 2QCY08 chg 1HCY09 1HCY08 chg
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Sales 8,664 6,904 25% 16,897 14,025 20%
Cost of Sales 4,776 3,662 30% 9,281 7,907 17%
Gross profit 3,888 3,242 20% 7,615 6,118 24%
Gross margins 45% 47% -4% 45% 44% 3%
Finance cost 229 66 249% 520 230 126%
Other income 274 66 317% 1,565 678 131%
PAT 1,861 1,545 20% 4,548 3,286 38%
EPS (Rs) 2.74 2.28 6.70 4.84
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Source: Company reports
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